Any of you take on debt as a savings mechanism?

[bigdaddybus]

Recently, my wife and I decided to do a deck remodel job at our house after part of the handrail gave way while I was leaning on it talking to the neighbor. (thankfully no injuries)

So we gave ourselves a budget of $15,000 for the materials, labor, and electrical work. We are also installing a SPA at the same time that we just purchased.

I didnt really like the idea of selling stock (as I hold high dividend stock as a form of savings) or raiding my emergency fund cash, so I decided to look at credit card options.

I was approved and recieved a VISA card with 0% balance transfers and 0% purchases until 2/15/15! I was kinda shocked that it was so easy to get a 18 month no interest card in 30 seconds online.

Personally, I dont have any concerns about my ability to pay the card off in full by 2/15/15, and we are only using it for the deck project.

What are your thoughts? good idea or bad?

[Wino]

Ask me on 2/16/15.

[bjl584]

It seems like a good plan since you have the money and have the ability to pay it off by the end of the term. I'd go for it so long as you can stomach the payment.

[bigdaddybus]

Ask me on 2/16/15.

I love it!

[kork13]

It's not a bad idea, and yes I have used very low-interest rate debts to my advantage before. Out of college, I was offered a $30k "career starter loan" at 1%, which I took, used partly to invest and partly to get a car for myself, and have since paid off. Last summer, I was getting ready to buy a house, so I took advantage of a 1.79% car loan to preserve capital for my home downpayment (instead of paying for the car in cash). So it CAN work for you, but you just be careful that you pay it off on time, and that you know fully what you're getting into.

Read the terms carefully. Often, if you charge anything additional to the credit card after the transfer, your purchases immediately start accruing interest at a fairly high rate. Also, how much is the upfront transfer charge? Normally it's between 2-3%, though often limited to something like $50-$100. That will take a bite out of the benefit, but as long as you're okay with that, I would say you can (carefully) proceed with it.

[bigdaddybus]

good point on the balance transfer fees. I looked up the card I got and found the following.

There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.

I wont be using any balance transfers but its good info to know.

EX. It got me thinking if I used my favorite rewards card for the $15,000 expenses I would get approx $200 in rewards. Then pay $450 in balance transfer fees to the 0% card. Ouch

[autoxer]

I would never call credit card debt a savings mechanism, sounds like trying to justify a purchase. How much interest will this whole ordeal save you? ($15,000 in your 'emergency fund' earning .0075% interest over a year would net $112.50) Is it worth $112.50 for all of the time you will spend figuring it out, making the monthly payments and adding unnecessary complexity to your financial situation, with the risk of slipping up and spending much more than that in credit card fees?

Be very careful with their terms, credit card companies exist to make money from lending, not do it for free.

[bigdaddybus]

I would never call credit card debt a savings mechanism, sounds like trying to justify a purchase. How much interest will this whole ordeal save you? ($15,000 in your 'emergency fund' earning .0075% interest over a year would net $112.50) Is it worth $112.50 for all of the time you will spend figuring it out, making the monthly payments and adding unnecessary complexity to your financial situation, with the risk of slipping up and spending much more than that in credit card fees?

Be very careful with their terms, credit card companies exist to make money from lending, not do it for free.

I would not tap into my cash emergency fund for this as its not an emergency, I was only seriously considering selling stock.

So how much money would I loose out on by selling stock?
assuming share price stays the same, the dividends lost over the course of a year on 15K in stock would be the following.
I would likely sell $3750 in each of the following stocks (EXC pays 4.125% dividend)(PHK pays 12.6% dividend)(EOD pays 11.4% dividend) and (ERC pays 8.69% dividend) for an average of 9.2%dividend yield. So I would loose out on about $1380 a year by doing this.

The share prices in 12 months, and if I pay no interest to the CC company will tell the real story

[bigdaddybus]

Be very careful with their terms, credit card companies exist to make money from lending, not do it for free.

oh I agree, but some of us find an odd sense of pleasure by "Sticking it to the Man!"

[kork13]

good point on the balance transfer fees. I looked up the card I got and found the following.

There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.

I wont be using any balance transfers but its good info to know.

haha oops... I totally mis-read your OP. I thought you were going to take a cash-advance (essentially the same as a balance transfer) on your credit card for the $15k. Somehow the thought didn't even enter into my mind that you'd use the card to fund the remodel as you went... lol

In that case, more power to you -- this is a great way to go, as long as you carefully read the fine print to ensure that you won't pay any interest charges. Once the 18 months are up, pay it all off, and you'll be good.

[bjl584]

This used to be easier to do pre 2008. You could get a 0% cash advance from the credit card companies and easily earn 5% or more on it in a MM or savings account.